Ruhr Economic Papers

Ruhr Economic Papers #219

The Inefficiency of Market Transparency – A Model with Endogenous Entry

by Yiquan Gu and Burkhard Hehenkamp

TU Dortmund, 11/2010, 24 S./p., 8 Euro, ISBN 978-3-86788-251-4

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Abstract

Including the entry decision in a Bertrand model with imperfectly informed consumers, we introduce a trade-off at the level of social welfare. On the one hand, market transparency is beneficial when the number of firms is exogenously given. On the other, a higher degree of market transparency implies lower profits and hence makes it less attractive to enter the market in the first place. It turns out that the second effect dominates: too much market transparency has a detrimental effect on consumer surplus and on social welfare.

JEL-Classification: D43, L13, L15

Keywords: Market transparency; endogenous entry; homogenous products

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